FINDING THE BALANCE

Abu Dhabi 2016 | CONSTRUCTION & REAL ESTATE | FOCUS: GROWING POPULATION

The population of Abu Dhabi is predicted to double by 2020 to nearly 5 million. Hinging on these statistics, the property market is on a path to find the equilibrium between sustainable supply and growing demand.

Abu Dhabi is witnessing frenetic infrastructure growth, which is also attracting a major influx of expatriates. Unless there is a significant shift in labor requirements, population growth will outstrip housing supply in the next five years. For the time being, the main challenge is to reduce the 37% of vacant housing units to 8%. Early in 2016, local institutions introduced new legislation in order to spur demand, encourage landlords to rent their property, and make investors' capital more secure.

The new property law is set to boost growth in the real estate market. The current regulation, issued by the Abu Dhabi Department of Municipal Affairs (DMA), seemed to have a positive effect on the market so far, as the yields are offering an average 7% value for investors across all bed categories. The most important jurisdictions of the law include the preparation of a register to save all data and documents relating to new real estate development, and the opening of a project escrow account by the developer upon approval from the DMA for depositing all amounts paid by buyers of off-plan real estate units.

Most third-quarter 2015 reports showed that only 2% to 3% units of the total housing stock will be delivered in 2016. In numbers, this means that Abu Dhabi will add 3,000 apartments and 850 villas to its residential supply in 2016. Moreover, expected delays in construction projects will also help to stabilize the market and avoid excessive oversupply.

Apartment rental rates rose by 5% on average in 2015, with premium projects achieving up to 10% growth. Meanwhile, apartment sale prices went up 3-4% during the year. Despite the emergence of more moderate economic conditions, levels of demand for buying and selling were stable during 4Q2015 and 1Q2016.
With limited supply in the pipeline, developers and landlords can expect their fill its offices with tenants for 2016. Demand for offices has remained active, with engineering and construction continuing to be the most operative sector by the number of inquiries, which reflects the recent growth in the number of infrastructure and real estate projects under progress. Currently there are 150,000sqm of vacant office space available on Al Maryah Island, falling within the jurisdiction of the Abu Dhabi Global Marketplace.

Furthermore, there is a significant shortage of affordable housing in Abu Dhabi. Traditionally, the capital city has been popular among families to settle down, so there is more demand for three to four-bedroom apartments to be built. Cheaper accommodation and smaller units tend to be found off-island and built in a sporadic fashion rather than in a planned community by master developers. To ensure the delivery of affordable housing to middle income earners, the Abu Dhabi Urban Planning Council (UPC) established this year a 20% quota of affordable homes within developers' new housing schemes. In contrast to apartments, which are coming up regularly, villas are still in short supply and its prices are expected to rise steeply.

After the tariffs introduction in 2015, utility bills are increasing in 2016, especially for those who use more than the fixed quota. Last year, the Abu Dhabi Distribution Company (ADDC) established utilities taxes to raise revenues to battle oil prices by cutting down on subsidies. In January 2016, ADDC raised water and electricity tariffs by 6.6%, accounting for the largest rise in the Consumer Price Index (CPI).

While oil price and production volumes have always been a key driver of Abu Dhabi's economy and real estate markets in generating a significant proportion of GDP, growth in demand has continued thanks to major capital projects that started when oil revenues were strong. Projects such as the airport expansion, the growth of Etihad Airline, and other major tourism attractions, including the Louvre Abu Dhabi, have an economic multiplier effect, ensuring continued GDP growth. The reinforcement of legal framework and the increasing population can fill market gaps in order to meet the balance between supply and demand.